Aether loses $1.2 billion in quarter

Andrew RatnerTHE BALTIMORE SUN

Aether Systems Inc., the Owings Mills wireless communications company, reported yesterday a first-quarter loss of $1.2 billion, but said most of it was due to write-downs of acquisitions made before the stock market drop last year.

Aether reported a first-quarter net operating loss of $46.8 million, compared with $8.6 million in the corresponding period last year.

The company's basic and diluted net operating loss per share was $1.16 for the quarter that ended March 31. That compared with a loss of 29 cents in the like period a year ago.

But company officials and stock analysts said the loss was not as large as expected. Analysts had projected a quarterly net operating loss per share of $1.24.

Aether released the results after the stock market closed yesterday. Its shares lost $1.03 to close at $16.95 on the Nasdaq. The stock's 52-week high was $216 per share in June; its low was $8.88 last month.

A year ago, the company had just begun increasing spending on other companies and research and development, having gone public in October 1999.

Aether spent more than $1.5 billion in stock and cash to acquire other companies from October 1999 through 2000. That included its largest purchase: $1.4 billion for Riverbed Technologies Inc. of Vienna, Va., in March 2000.

"The auditors decided to write it down, get it off our books and we won't have to worry about it again. We figured this was the time to do it in a down market," said David S. Oros, Aether's chairman and chief executive officer. "If you bought a company three years ago, you wouldn't do this, but for companies bought a year ago it makes sense."

Other technology companies, including AT&T; Corp. and CMGI Inc., also have taken large write-downs this quarter, said David Reymann, Aether's chief financial officer. The company still expects to become profitable by the third quarter of 2002, he said.

Aether's operating expenses were $1.1 billion, up from $34.7 million.

"The cash burn was better than expected. It's more valid to look at them quarter over quarter recently to get an accurate picture of the business," said Riyad M. Said, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va., who reiterated a "buy" recommendation on the stock two weeks ago.

Aether's quarterly EBITDA - earnings before interest, taxes, depreciation and amortization - was a loss of $52.4 million, about $5.5 million less than expected, he said.

The company's revenue for the quarter was up sixfold, to $30.7 million from $5.4 million. Quarterly sequential revenue grew 19 percent from $25.8 million in the fourth quarter of 2000.

Software revenue was $11.8 million, up from $1 million for the corresponding period a year ago. That part of the business will become key as Aether markets its "fusion" technology, analysts said.

The company rolled out a national media campaign last month to pitch Aether Fusion.

One ad shows a jumbled Eiffel Tower to represent the state of wireless communications now, full of mismatched systems and devices. Fusion software can solve that problem, the company says.

"The business model is certainly changing around, and that doesn't make investors terribly comfortable," said analyst Rob Sanderson, with Banc of America Securities LLC in San Francisco.